Restaurant Brands New Zealand shares jumped to a record after the fast food operator unveiled plans to expand across the Tasman, buying the biggest KFC fried chicken franchise in New South Wales for A$82.4 million in cash and scrip.
The shares climbed 9.8 per cent to $4.60, the highest since the stock listed in June 1997.
Auckland-based Restaurant Brands has signed a conditional agreement to buy the shares of QSR Pty, the biggest KFC franchisee in NSW with 42 stores, generating annual sales of A$100 million and earnings before interest, tax, depreciation and amortisation of A$15 million, it said in a statement.
"Australia is not an easy market for anything really, and fast food's not different, but neither's New Zealand and Restaurant Brands has managed to deliver," said Mark Lister, head of private wealth research at Craigs Investment Partners.
"You certainly have got an efficient business model that works well and they seem to know their market and their customers, so on day one the market seems happy to back them to at least replicate some of their success here, over there."
Restaurant Brands will pay A$62 million in cash, which it will fund with new facilities, and 5 million shares at $4.36 a share, a 4.1 per cent premium to the last trading price.
"The acquisition comprises of a high quality portfolio of stores located in a number of strategic urban locations in Sydney and the wider New South Wales," chief executive Russel Creedy said. "We see the acquisition as an opportunity to expand RBD's geographical footprint of KFC stores in a market with considerable further expansion opportunities."
Restaurant Brands operates the KFC, Pizza Hut, Starbucks and Carl's Jr franchises in New Zealand, of which KFC is its biggest earner, generating almost three-quarters of sales.
The deal is contingent on a number of conditions, including approval from franchisor Yum! Restaurants International, and Restaurant Brands expects it to be settled by the end of next month.
QSR vendor, Copulos Group, will own about 4.9 per cent of Restaurant Brands as a result of the deal, with the shares subject to a 12 month escrow period.
The expanded Restaurant Brands is expected to generate annual revenue of $500 million and ebitda of $70 million. The acquisition will add transaction costs of $1 million to Restaurant Brands' 2016 results before adding to the company's earnings from the second quarter of the 2017 financial year.
Restaurant Brands expects to have total debt of $82 million once the deal is completed.
The stock is rated an average 'hold' based on three analyst recommendations compiled by Reuters, with a median price target of $4.60.